C-U centers to remain part of Supervalu

URBANA — Supervalu's distribution centers in Champaign-Urbana will continue to be part of the company, but Supervalu itself will be overhauled as a result of massive changes announced Thursday.

The Minneapolis-based grocery retailer and wholesaler has agreed to sell Jewel-Osco and four other retail chains to an investor group led by Cerberus Capital Management for $3.3 billion.

The company also agreed to major ownership and management changes that will give Cerberus greater control of Supervalu.

A Cerberus consortium will buy up to a 30 percent interest in Supervalu and be represented on a restructured Supervalu board of directors.

Plus, a new CEO and a new board chairman have been designated for Supervalu.

The new CEO will be Sam Duncan, chairman and CEO of OfficeMax from 2005 to 2011 and CEO of ShopKo Stores for three years before that.

The new chairman will be Robert G. Miller, current CEO of Albertson's LLC, a grocery chain majority-owned by Cerberus.

They will replace current Supervalu Chairman and CEO Wayne Sales, who assumed the latter title after the company fired its previous CEO in July.

Following the sale of the Jewel-Osco, Albertson's, Acme, Shaw's and Star Market retail chains, Supervalu will have five regional brands — Cub, Shop 'n Save, Farm Fresh, Shoppers and Hornbacher's — as well as the 1,329-store Save-A-Lot discount grocery chain.

Supervalu will also continue to provide wholesale service to 1,950 stores across the country that are not owned by the company.

Earlier this week, Supervalu disclosed it will close its distribution center in Pleasant Prairie, Wis., in May, with layoffs of 117 employees beginning in March.

The company also has a produce distribution center in Champaign — W. Newell & Co. — that employs about 125.

Siemienas could not say precisely how Thursday's changes might affect the local distribution centers.

"I can't predict the future, but the Champaign distribution center does stay part of Supervalu," Siemienas said.

He said "no changes that we're announcing at this time" directly involve the centers.

But more changes could lie ahead. In a release, the company said "key elements of Supervalu's go-forward business plan include continued focus on right-sizing operations and maximizing efficiencies across the country."

The sale of the five retail chains including Jewel-Osco will relieve Supervalu of some of its debt burden.

The $3.3 billion deal calls for the Cerberus-led consortium to pay $100 million in cash for the 877 stores and assume $3.2 billion in debt.

Sales, the outgoing chairman, said the sale will leave Supervalu with three principal business units: the Save-A-Lot discount chain, four traditional retail chains and the wholesale business serving stores not owned by Supervalu.

"Following the sale, Supervalu will have three strong, market-leading business units with more consistent cash flows and improved earnings ... growth potential," he said.

Under the arrangement announced Thursday, a Cerberus-led consortium would offer $4 a share for up to 30 percent of Supervalu's outstanding common stock.

That's a 50 percent premium to Supervalu's average closing price over the last month.

Investors seemed to approve of the changes. Supervalu's stock closed Thursday at $3.47 a share, up 43 cents from its opening of $3.04 a share.

Supervalu's board of directors would also be restructured. Five of the 10 current directors would resign, and two Cerberus-appointed directors, including Miller, would be added, for a total of seven. Later, four more directors, including Duncan, would be added, for a total of 11.

Supervalu currently has annual sales of about $35 billion. After restructuring, the company is expected to generate about $17 billion in revenues.

The sale would slice the number of traditional retail stores sharply, to about 191.

The retail food segment has been the most stagnant for Supervalu. Even though the retail segment accounts for about 64 percent of net sales, the segment's operating earnings amount to only 0.6 percent of sales.

In contrast, operating earnings from Save-A-Lot amount to 3.2 percent of sales, and operating earnings from Supervalu's independent business amount to 2.6 percent of sales.

On Thursday, Supervalu reported net income of $16 million, or 8 cents a share, for the quarter that ended Dec. 1, 2012.

That compared with a net loss of $750 million, or $3.54 a share, for the comparable quarter a year earlier.

Net sales for the most recent quarter were $7.9 billion, down from $8.3 billion a year earlier.